Oil prices plunged overnight, with US crude futures hitting an 18-year low, as governments worldwide accelerated lockdowns to counter the coronavirus pandemic that is causing global fuel demand to collapse.
Oil futures have lost more than half their value in the past 10 days, as schools have closed, businesses have shuttered and governments worldwide have urged residents to limit gatherings.
Global oil demand by the end of March could fall as much as 8 million to 9 million barrels per day (bpd), Goldman Sachs said.
Investors broadly fled risky assets again on Wednesday, after equity markets recovered on Monday. US stocks slumped, with the S&P 500 dropping 7 per cent, triggering a 15-minute halt to trading, while copper futures fell 6.9 per cent.
US crude fell $US6.58, or 24.4 per cent, to settle at $US20.37 a barrel. US crude futures have lost 56 per cent over last 10 days, in the worst 10-day trading stretch since the contract launched in 1983.
Brent crude settled down $US3.85, or 13.4 per cent, at $US24.88 a barrel after dropping as low as $US24.52, its weakest since 2003.
“The market is cascading. It’s trying to search for a bottom and it doesn’t seem able to find one,” said Gene McGillian, vice president of research at Tradition Energy in Stamford, Connecticut. “There are fears of an economic collapse because of what this virus represents, globally.”
The oil market was already reeling after Saudi Arabia decided this month to dramatically increase supply since it and Russia could not agree to cut output in anticipation of weaker demand.
Saudi Arabia has so far ignored entreaties to act to balance the market, reiterating plans to maintain production at more than 12 million barrels per day, which would be a record.
“Things changed very quickly – we had one extreme event collide with another,” said John Saucer, vice president of research at Mobius Risk Group in Houston.
US crude futures fell even after weekly US data showed notable declines in gasoline and diesel inventories. Crude stocks rose by 2 million barrels, while gasoline and distillate inventories fell by 6.2 million and 2.9 million barrels, respectively.